Banks and Power

Chapter 23 — The Monetary PowerResides in the Banks

(An article of Louis Even, first published in the January,
1970 issue of the Vers Demain Journal.)

The legislative power has its seat in parliaments, since this is
where laws are discussed and voted upon.

The executive power resides in the offices of ministers, since
it is they — the Prime Minister and his Cabinet — who make
the decisions which are carried out by the civil servants.

The judiciary power resides in the courts, since that is where
the judges practice their duties.

And where does the superpower, the monetary power, reside?
The monetary power resides in the banks. It is in the banks that
financial credit is actually created and cancelled.

It is when a bank grants a loan, either to an contractor, a retailer,
or to a government, that new financial credit is created.

The banker credits the borrower's account with the loan granted,
just as if the borrower had deposited that amount. But the borrower
actually neither brought in nor deposited any money, since he came
to the bank to get money he did not have.

The borrower will now be able to issue cheques on this account that
he did not have when he entered the bank, but that he now has upon
leaving the bank.

No account of any other customer of the bank was reduced. This is
therefore a new account, added to the accounts that already exist.
The total credits in the total accounts of the bank are therefore
increased by the amount of this new account.

There is therefore an increase in financial credit, modern money,
which will be put into circulation by the cheques of the borrower
issued on this new credit.

On the contrary, when a borrower comes to the bank to repay his
loan (credit that had previously been borrowed), it reduces the
quantity of credit in circulation accordingly. The total quantity of
blood in the economic life is thus reduced by the same amount.

A simple bookkeeping operation, made with one stroke of the pen,
had created financial credit. Another simple bookkeeping operation,
when the loan is repaid, cancels, destroys this credit.

It is easy to see that, if during a given period of time, the total of
the loans exceeds the total repayments, this puts more credit into
circulation than what is cancelled. On the contrary, if the total of
the repayments exceeds the total of the loans, it causes a period
of reduction of credit from circulation.

If the reduction period persists, the whole economic body is
affected by it: it is called a crisis — a crisis caused by a restriction
of credit.

Since the borrower must pay back more than what was lent to him,
because of the interest, he must withdraw from circulation more
money than what was put into circulation. For this, he must withdraw
from circulation extra money that has been put there by other
borrowers.

As every new credit comes from the banks, under the condition of
paying back more money than the capital amounts loaned out, other
people must also borrow, following the first borrowers. The latter have
even more difficulties in repaying their loans, since they have to find
extra money out of the credit in circulation, which is already reduced
by the amount of money that the first borrower had to repay in interest.

This chain goes on in the same way for the next borrowers, and eventually,
some cannot pay back their loans. Then the banks restrict further loans,
which slows down the whole economic life. But the banks put the blame
for this situation on the population that suffers from it.

In order to have the flow of credit that is required for economic life
resume, the chain of loans will have to take place again, breeding a
bigger and bigger chain of debts.

A tool of the superpower

The present banking system is the instrument used by the monetary
superpower to maintain its supremacy over nations and their
governments.

The banks are supported in all this by the ridiculous, politico-financial
rule that binds the distribution of purchasing power to employment,
in a production that requires fewer and fewer employees to supply
the goods necessary for life.

You must not conclude from this that your local banker is part of this
dictatorship. He is only a subordinate who, most likely, is not even
aware that when he inscribes loans in the ledgers of his bank, he creates
credit, and that the repayments inscribed in his ledger destroy, cancel,
this credit.

You may still hear backward scholars deny that the volume of credit in
circulation depends upon the action of the banks. These backward scholars,
who resist the obvious, are an invaluable support to the superpower,
through their ignorance — if it is really ignorance on their part, or through
vested interests that bind them, or through their collusion with a power
which can bring them easy promotions.

Upper-class bankers, on the other hand, know very well that financial
credit, which makes up the bulk of modern money, is created and
cancelled in the ledgers of banks.

A distinguished British banker, the Right Honourable Reginald McKenna,
one-time British Chancellor of the Exchequer, and Chairman of the
Midland Bank, one of the Big Five (five largest banks of England),
addressed an annual general meeting of the shareholders of the bank,
on January 25, 1924, and said (as recorded in his book, Post-War Banking):
“I am afraid the ordinary citizen will not like to be told that the banks
can, and do, create and destroy money. The amount of finance in
existence varies only with the action of the banks in increasing or
decreasing deposits and bank purchases. We know how this is effected.

Every loan, overdraft, or bank purchase creates a deposit, and every
repayment of a loan, overdraft, or bank sale destroys a deposit.”
Having also been Minister of Finance, McKenna knew very well where
the bigger of the two powers — the power of the banks and that of the
sovereign government of the country — resided. And he was frank
enough to state the following, which is very uncommon among bankers
of his level:

“They (the banks) control the credit of the nation, direct the policies
of governments, and keep in the palm of their hands the destinies of
the peoples.”

This is a statement which is in complete agreement with what Pope
Pius XI wrote in his Encyclical Letter Quadragesimo Anno, in 1931,
about “those who, because they hold and control money, are able
also to govern credit and determine its allotment, for that reason
supplying, so to speak, the lifeblood to the entire economic body,
and grasping, as it were, in their hands the very soul of production,
so that no one dare breathe against their will.”

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